Credit card rewards and restrictions fluctuate greatly – by the specific credit card and the originating bank. Each credit card program comes with a laundry list of rules that flawlessly illustrate the notion of ‘fine print.’ For those who routinely participate in using rewards credit cards to strategically enrich their world, you should recognize that unless you possess an eidetic memory, it is nearly impossible to remember each aspect about every card that fills your wallet.
The data behind the nifty new-fangled digital card is where a churning expert stays ahead of the ‘credit card flipping’ curve; by staying in the know. While there are many ways to organize this crucial data; the easiest one is to maintain a simple spreadsheet highlighting relevant and often changing data. This information must be updated routinely; otherwise you’ll be making financial decisions on bad data – a rookie error.
If you are a newbie, or a master of the rewards credit card game of financial pursuit, the rule of thumb of this (or any other game) is: If you wish to reap the credit card freebies, you must not only understand the rules to the game, you must be able to play within the variables that define each credit card’s program.
Let’s begin with the Basics
In 2015, Chase first applied their now notorious credit card guideline – the 5/24 Rule. Most industry insiders agree that the 5/24 rule was designed to mitigate (or to hopefully eradicate) churners from generating impressive amounts of rewards with their ‘churn and burn’ style. Before the Chase 5/24 rule made its way onto the front page of the bank’s underwriting guidelines, churners had found a way to essentially beat the banks at their own game. This innovative strategy cost banks additional money, but perhaps even worse was the fact that their inability to stop the practice was embarrassing.
The art of churning requires the manipulation of several credit cards, that is, if you are to make it worthwhile. The concept is fairly simple, but it must be regularly monitored. Here’s how it is done:
Selected rewards cards are sent for approval to different banks at the same time. By simultaneously applying for a few rewards cards, a churner takes advantage of the short delay in the credit reporting process that happens when a consumer opens an application.
Here is the 5/24 rule, if anyone dared to put it in print:
If an applicant applies for a new Chase credit card, while their credit report reveals that they have opened 5 new credit cards (or credit lines) within the last 24 months, it is more likely than not that the credit request will be denied; even if the applicant’s credit profile exceeded excellent.
Despite its unusual, mysterious entrance into the world of credit card underwriting, the Chase 5/24 rule is stunningly simple. In fact, the name of the rule is based upon the rule’s threshold; five newly opened credit cards in a span of 24 months.
The short answer – Churners will NOT be able to use Chase credit cards for a future play. The introduction of the 5/24 has essentially sidelined the entire credit card product line offered by Chase. For some credit card users, however, the Chase 5/24 Rule will never reach their financial radar. However, there are many other consumers, who have successfully participated using the churning methodology. For them, the rule interferes with how the churning move goes.
Credit scores are living, breathing things that are constantly in flux – forever adjusting internally based on an incredible amount of data fed by countless financial data streams at every minute of the day. The information is so massive; most people have trouble wrapping their heads around the size of this concept.
So, yes anything that even glances at your credit profile affects your credit score. This predictable reaction applies to both consumer and business credit profiles.
While the benefits of mastering the art of churning are obvious and tempting, it is prudent to vet out how this financial approach might influence your credit score, which is typically negative. Everyone knows that each time you apply for some sort of credit a hard inquiry is born. The result is a few points shaved off your credit score. An inquiry stays on a report for a couple of years; its impact is gone after year one.
Inquiries are only one of innumerable variables that impact your credit score. Instead of worrying about how you can remember all the variables that might impact your credit score, it is much easier to manage your credit profile responsibly and proactively to maintain a great credit score. Reach out for your free report each year. Some banks now disclose your credit score as a regular part of their service.
In addition to the consumer population, business owners should pay close attention to the equivalent of a personal credit report – the business credit report. Credit can be likened to a financial tool, a component that supports a loan request. A properly managed business credit score acts as an important financial tool for future cash needs.
Businesses often depend upon other financing methods to help their business grow. While churning is legal, and often effective in reaching one’s short-term goals, there are risks involved. It remains possible that some leftover churning missteps might negatively impact your ability to find financing to meet your business’ objective at a future date.
Whether it had meant to or not, Chase’s 5/24 notorious rule has made a big splash in the credit card departments of banks. It has also made a direct hit on churning’s modus operandi. The rules of the game have changed to rein in the bank’s losses as they begin to counteract the profiteers manipulating a loophole – a loophole created by an unavoidable credit reporting time delay.
The reality is that it is thing very sort of reaction, a rigid bank rule (to head off churners using a loophole), that eventually overcomplicates the credit card approval process. The IRS’ guidelines suffer from the same problem.
Churning creates free trips and many other discounted products and services, available to all. Manipulating rewards credit cards offer freebies, but in the serious world of finance, churning is a bit like child’s play.
For those using rewards credit cards for business purposes, to simply reap the rewards, let your creditors know where you are going next.